CEO Of Italy's Largest Bank Says Haircuts Of Uninsured Depositors "Acceptable", Should Become A Template

Tyler Durden's picture

While the head of the ECB and his assorted kitchen sinks scramble to explain how Diesel-BOOM was horribly misunderstood when saying that depositor impairment may and will be the template for future European bank "resolution" (as should have been the case from Day 1), the CEO of Italy's largest bank appears to have missed the memo. As Bloomberg reports, according to the chief executive Federico Ghizzoni, "uninsured deposits could be used in future bank failures provided global rulemakers agree on a common approach." Or failing that, because if Cyprus taught us anything is that Europe will never have a common approach on anything, just use deposits as impairable liabilities, period, once the day of reckoning for Non-Performing Loans comes and these are forced to be remarked to reality, just as happened in Cyprus. One can only hope that uninsured deposits do not represent a substantial portion of the bank's balance sheet because the CEO basically just told them they are next if when risk comes back to the Eurozone with a vengeance. Especially since as Mario Draghi was so helpful in pointing out, "there is no Plan B."

To wit:

Cutting large deposits in failing banks, along with other liabilities such as bonds, to offset losses is acceptable as long as small savers’ funds remain protected, Ghizzoni told reporters in Vienna late yesterday. The European Union has to introduce identical rules in all of its member states and ideally those rules would be coordinated globally, he said.

In fact, to the Italian, deposit impairment is perfectly ok as long as "everyone does it" - in other words, if it does become the template the Dutch finance minister already said it is, then all is well.

Including deposits “is acceptable if it becomes a European solution,” said Ghizzoni, 57. “What we cannot accept is differentiation country by country inside the same area. I would strongly suggest to make this decision not only within Europe but within the Basel Committee, where all countries are represented. Otherwise we would open the market for arbitrage.”

 

Ghizzoni said deposits should only be included when bonds aren’t sufficient, and those below the guaranteed level of 100,000 euros should be off limits. While he would prefer not to touch them at all, including deposits in a global plan was a acceptable solution, he said.

 

“The deposit issue is very sensitive,” he said. “It will become part of the discussion for the bail-in instruments related to the resolution plans of banks. I hope it will be addressed carefully and with clarity.”

Which makes perfect sense: where will those "evil, tax-evading oligarchs" go if everyone in the world says that no uninsured deposits anywhere are safe any more.

Well, perhaps Singapore? Or the Caymans? Or Lichtenstein? Or Switzerland?

Yes, there are tax havens where the banking sector is not woefully insolvent, and the rich have ways of finding out where these places are. And remember: Italy does not have capital controls to prevent the outflow of deposits. At least not yet.

But what it also means is that for a bank like UniCredit with nearly €1 trillion in assets, the liability side of its balance sheet is about to get far smaller, forcing it to readjust its balance sheet i.e., pump more equity to offset the loss of unsecured funding liabilities. One wonders just how this will happen when no European bank has made any real profits in the past several years, as for raising equity capital... forget it.

More importantly, as the chart below shows, deposits just happen to be a primary source of funding for the Italian megabank. Perhaps trying to spook them is not the smartest idea, especially if UniCredit also plans on one day "resolving" its non-performing loans (15% of total assets? 20%? 25%? 30%?) and is forced to "impair" liabilities from most junior all the way to deposits (and higher).

Ghizzoni's conclusion is perfectly expected: allay any fears that the Monte Paschi specter of depositor outflows has shifted to UniCredit:

Ghizzoni said he had been “afraid” of his clients’ reaction to the measures in the Cyprus rescue and asked for monitoring of deposit flows in all 22 European countries -- stretching from Italy, Germany and Austria as far as Russia and Turkey -- where his Milan-based bank operates. It didn’t find any loss of deposits, he said.

 

“Really, we were afraid, we started to monitor on a daily basis the flow of deposits in different countries,” he said. “Maybe I’m disappointing you, but in reality we had no reaction so far from customers.”

Maybe the CEO should revisit this issue in a few days to a week, once the bank's clients are fully aware its CEO is perfectly happy to sacrifice the whales in order to preserve his bank's viability. Perhaps then customers will have a slightly different reaction...

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localsavage's picture

i doubt that any large depositors are still in Italy, Spain etc. but I bet they all just called there banks if they are.

gmrpeabody's picture

The bar doesn't seem to be set very high to be an Italian bank CEO...

BaBaBouy's picture

Uh Huh ...

Get GOLD ...

Pool Shark's picture

 

 

Italian deposits being wathdrawn in: 5,... 4,... 3,...

 

 

MiguelitoRaton's picture

Look for Swiss bond rates to go more negative, US bonds could soon go negative as money flows out of the Euro-tanic

CH1's picture

Gee, why would it be that Bitcoin is in demand?

(I love gold, btw, it's just dangerous to move across armed borders.)

flacon's picture

This "template" is being implemented in Canada, USA, and the UK as well. Soon there will be no place to hide. Soon enough banks won't accept paper money deposits because you will be looked at as a financial terrorist doing money laundering. 

pods's picture

Most in the matrix give you the stink eye if you use cash.  Paid for an auto repair in cash once, they shit a brick when I used cash to pay off the bill.  Prolly thought I was a dope dealer.

pods

Skateboarder's picture

Maybe it's us who have not evolved. No one ever said evolution had to be for the positive. Speciation has happened - you cannot deny it.

James's picture

Soon individuals won't use Banks to deposit funds because Banks will be looked at as financial terrorists doing money laundering.

Another-Ex-RPI-Man's picture

Into......... BitCoins. 

BitCoins as stupid they may seem, become less and less stupid.

As Einstein said: "Two things are infinite: the universe and human stupidity; and I’m not sure about th’universe!"

 

IamtheREALmario's picture

Be careful of escaping into box canyons.

asteroids's picture

Someone tell what the difference between what Corzine did to his clients and what Cyprus bankers did to theirs. Answer, none. They both stole money. I gave MY money to you to keep safe. NOT to go gambling with. Bankers and politicians had better figure that one out quick or banks WILL collapse with massive bank runs.

krispkritter's picture

This is like seeing the 'Eurotanic' hitting the iceberg and the crew of politicians and bankers are heading for the lifeboats after deciding which depositors get locked in steerage.  Like most crashes, it's horrifying to watch as it happens in kind of a slo-motion display but you just can't avert your eyes...

prains's picture

krispy

what's the name of the tune the bands playing?

NoDebt's picture

It's "Money" by Pink Floyd.  Or pretty much anything from 'Dark Side of the Moon'.

..... There is no dark side of the moon, actually.  It's all dark.

ncdirtdigger's picture

Nearer, My Gold, to Thee

Pool Shark's picture

 

 

 

Well played sir!

[golf clap]

prains's picture

Super Rich Kids by Frank Ocean

krispkritter's picture

 "There Must Be 50 Ways To Screw Your Depositors"

kaiserhoff's picture

I'm thinking one for each of the 57 states.

A Nanny Moose's picture

Supertramp - Crime of the Century.

IamtheREALmario's picture

Just the usual ... sell your soul and give up all free will, nothing special.

toys for tits's picture

Let the class-warfare continue.

Stoploss's picture

Patiently awaiting the Sealy Safe Mattress..

Should be seeing commercials start popping up in a couple weeks.

Matt's picture

You got strong brand loyalty for Sealy? If not, there is a Spanish company that makes a matress with a safe in it (surprisingly, not an April Fool's joke, and sold out!):

http://newsfeed.time.com/2013/04/03/the-mattress-safe-an-alternative-to-shaky-spanish-banks/

McMolotov's picture

Yeah, this is how their plan works. They'll start with the "rich," uninsured depositors to make confiscations seem acceptable, but they'll keep revising downward what "rich" is. Eventually, they'll come after everyone, rich and poor, insured and uninsured.

Beheadings should become the template.

NoDebt's picture

That. 

Exactly right.

ZerOhead's picture

I wouldn''t want to worry any Canadians here but if you have any mutual funds or retirement accounts(?) etc. over $100,000 and your bank experiences financial difficulties you may very likely become the new owner of that same burnt out hulk of a bank.

You may want to read this...

The budget says Flaherty will follow the recommendations set out in a 2011 report by the Financial Stability Board, a new international body headed by Bank of Canada Governor Mark Carney. And those recommendations are blunt. Insured deposits would be protected. But uninsured deposits, including savings over the $100,000 limit and mutual funds, would be fair game.

http://www.thestar.com/news/canada/2013/04/04/jim_flahertys_cyprusstyle_...

Matt's picture

Even if they do not lower the insurance level, the unintended consequences will be devastating. As discussed previously here, many resturants and other businesses need a float in the hundreds of thousands of dollars just to make payroll and buy supplies. If the Troika was smart/not evil, they would have waited 6 months to see the effects of the policy before declaring it as template.

css1971's picture

Just to be quite clear.

When they close a bank down, they take all the money. Insured deposits as well. It's literally all gone anyway, your bank doesn't have your money, and I mean that right now they don't have it. It's why your account is a liability, they owe you that money but they ain't got it.

What you have is a government insurance policy on a bank account. You don't have your money and your bank doesn't have your money and the government doesn't have your money.

You're going to have to wait for that insurance policy to pay out when TSHTF you won't be getting it immediately.

Banksters's picture

The best way to rob a bank is to own it- 

Anon- probably as old as  the first bank...

The best way to conquer sovereign nations is to institute a fraudulent financial system that grows like a cancer into all forms of healthy economic activity.  

 

I translated that from a Draghi speech.  

 

Ghordius, if  you are out there, what part of your mind do you use to ignore reality?

NotApplicable's picture

I think he's busy getting a haircut.

Buckaroo Banzai's picture

What's the over/under on the implementation of eurozone-wide capital controls? is it measured in days or weeks?

pods's picture

Whenever it starts it will be about a week too late.

On the bright side, money velocity should now be going moonshot.

pods

NoDebt's picture

Actually, no.  Money has to change hands from one owner to another to have "velocity".  Moving it from your account in Italy to your account in Germany doesn't count towards velocity.

Unless you're thinking of it's PHYSICAL velocity, which is likely to be around 550MPH.  The speed of your average private jet heading out of Europe to the Caymans with bags of cash in the cargo hold.

pods's picture

Smart people are going to realize that nowhere is safe.

Why are the Caymans any different than Europe?

So either find something that keeps value, or earn more than the head lopping "haircut."

But they aren't going to just move it to the next bank.

pods

Winston Churchill's picture

They will for awhile. ie Move to the relative safety of a different locale.

The penny will drop over the next couple of weeks,that no bank is safe anywhere.

Just make sure you get your  PM's before that penny hits the floor.

They are on sale now,courtesy of Zimbabwe Ben, and the PPT,so buy as much as

you can afford..

10PastMidnight's picture

The beatings, ur um haircuts, will continue until moral improves.

insanelysane's picture

Corzine is the template.  Client money is the organization's money and if the organization gambles and loses, then the client loses.

This might be just the thing Self Storage companies need to do to go parabolic.

1.  Take out loans using all of the stuff in the storage units as collateral.

2.  Make big bets at casinos/financial markets around the world.

3.  Sell people's stuff on eBay to cover losses.  Double bonus to execs if they sell someone's possessions back to them.

 

HowardBeale's picture

But there are still large "depositors" at flammable entities like GS; and that is one place I wouldn't want to be when the American Haircuts begin...

newworldorder's picture

More likely NOT. There must be a pathological WILL to keep trusting all bankers in Europe. That is why Draghi and Ben will do everything in their power to calm the waters.

Another-Ex-RPI-Man's picture

As a rule of governance, I would force that the ENTIRE wealth of the Bank's CXO and First Management line would be in the bank they are managing.

I want to see them supporting such a rule then.

Debugas's picture

as a rule of governance i would forbid banks creating money out of thin air. That would be enough to end this madness

Winston Churchill's picture

Not just Italy.

Depositors are moving money now.The SWIFT transfers I did on

Tuesday morning have still not gone thru'.

Something very,very bad is happening behind the curtain.

kaiserhoff's picture

Great call a couple of days ago Winston.

All big money is now hot money.  It's growing wings.

What could go wrong?

Buck Johnson's picture

I totally agree, the rich guys must know which banks and countries are about to go under and they most likely bailed. 

TheFourthStooge-ing's picture

We've got your money, suckers. Whaddaya gonna do about it?